Social Security’s Deepening Crisis

The most recent report from the Social Security Administration tells us that, absent any changes (raising tax rates, cutting benefits, changing the claiming ages etc.), the Social Security trust fund will run out of money in 2032—6 years from now.  Of course, that won’t end Social Security; 185 million people will still pay payroll taxes on their wages and earnings, enough to pay roughly 78% of the payments 70 million retirees had expected to receive.

It’s important to understand that this is a projection of an uncertain future.  After the Covid pandemic, the trust fund’s depletion date was pushed out a couple of years, due to fewer people alive to claim benefits.  A recession or depression could reduce payroll tax revenues; a booming economy could raise them.  But these would be marginal shifts of a couple of years either way.

Part of the funding problem has been that people are living longer.  In 1940, when Social Security was still a new program, only about 54% of male and 60% of female workers survived to full benefit age of 65.  In 1990, those numbers rose to 72.3 and 83.6, respectively, and the age statistics have gone up since then—meaning that the average worker is collecting roughly 5-7 additional years of benefits.

What to do?  The report offers two possible fixes. One is to reduce benefits by 25.2 percent across the board.  Another is to raise the combined payroll tax rate from the current 12.4 percent to 16.65 percent.  If one or the other of those solutions were enacted in January (which is hardly likely), then the Social Security system would be able to make full payment of the scheduled benefits for the next 75 years.  If we wait a year, the benefit cut would have to be steeper or the tax rate hike would have to be higher.

And Congress has already waited 43 years to address this issue.  The last significant changes to address Social Security solvency were enacted in 1983.  To see how these numbers add up while Congress fiddles, consider that the 2010 report told us that a payroll tax increase to 14.4% would have been sufficient to fund full Social Security for the next 75 years.

It’s doubtful that members of Congress, who are accountable to voters, would decide to anger the elderly voters who are the most reliable people in the country to cast a ballet.  That means that it’s likely that people who are currently receiving a Social Security check, and people who are near retirement age, will. somehow, some way, get their full benefits.  The real question is how much of the burden Congress will dump on younger American workers, and how much of a benefit cut they will receive when it’s their turn to retire.

Sources:

• https://www.mauldineconomics.com/frontlinethoughts/social-insecurity-surprise-edition?_sc=OTQzMjQwNSMzMjA5OA%3D%3D
• https://www.ssa.gov/OACT/TR/2026/